Financial dependence and the terms of payments in international transactions

ABSTRACT

Using a novel data on payment choice in export transactions, this study shows that financing cost in a country is more important in terms of offering (undertaking) post-shipment (prepayment) terms in exports (imports) for the industries that rely more on external finance.

KEYWORDS:

• Method of payments
• trade finance
• post-shipment
• prepayment
• financial dependence

JEL CLASSIFICATION:

• F14
• F13

Acknowledgement

We thank Tim Schmidt-Eisenlohr and Nurullah Gur for helpful comments and discussions.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Manova (2012).

² Beck (2003).

³ Similar studies include Antràs and Foley (2015) and Demir and Javorcik (2014). Demir and Javorcik (2014) use a highly disaggregated data on payment choice from Turkey.

⁴ We checked the F-test for the individual effects to conclude that panel estimation and Hausman test to conclude that fixed effects is a better choice.

⁵ Shares are between 0 and 1.

⁶ Our results are insensitive to treating only Open Account as post-shipment.

⁷ The financial dependence measure is time-invariant.